Greetings!!
I am 33 years old, working as a civil engineer residing in Chennai with a family of four [ wife and two daughters]. I am earning Rs. 80,000 per month. My investment portfolio is given as below:-
LIC - Single Premium Endowment Plan One Time ? 5,68,230
LIC - Single Premium Endowment Plan One Time ? 4,32,250
LIC - New Money Back Plan - 25 yrs 821 Every Six Months ? 14,511
Public Provident Fund Yearly ? 1,50,000
Sukanya Samriddhi Yojana Yearly ? 1,50,000
Mutual Funds: SIP - Equity Funds Monthly ? 12,500
Mutual Funds: Lumpsum - Equity Funds One Time ? 10,00,000
My investment goals are: -
To provide a quality education in an international school to my two daughters with multiple exposure to sports & arts.
Savings for the construction of a house of 3500 sqft in Chennai in about 10 years.
Savings towards retirement fund.
A broad breakup of my monthly expenses as against my income is given below: -
Groceries & Vegetables. Rs. 20,000
Maid Salary. Rs. 14,000
Children Education. Rs. 16,000
Utilities. Rs. 3,000
Investments. Rs. 28,000
Entertainment Rs. 4,000
As you can see above I am finding it difficult to sustain as my expenses are shooting up over the income. In this regard, I would like to request the following advice: -
Whether my investments are on the right track to achieve my goals or should I alter my investment portfolio ?
Are there any options such as stock markets to generate passive income to strengthen my financial situation ?
Looking forward to hearing from you.
Ans: Comprehensive Financial Planning for Education, Housing, and Retirement
Greetings! It’s commendable to see your proactive approach towards financial planning and investing for the future of your family. Let’s evaluate your current investment strategy and explore options to better align your investments with your financial goals.
Current Financial Situation
Monthly Income and Expenses
Monthly Income: ?80,000
Expenses Breakdown:
Groceries & Vegetables: ?20,000
Maid Salary: ?14,000
Children Education: ?16,000
Utilities: ?3,000
Investments: ?28,000
Entertainment: ?4,000
Total Expenses: ?85,000
Current Investments
LIC Single Premium Endowment Plans: ?5,68,230 and ?4,32,250 (One-time)
LIC New Money Back Plan: ?14,511 (Every six months)
Public Provident Fund (PPF): ?1,50,000 (Yearly)
Sukanya Samriddhi Yojana: ?1,50,000 (Yearly)
Mutual Funds - SIP in Equity Funds: ?12,500 (Monthly)
Mutual Funds - Lumpsum in Equity Funds: ?10,00,000 (One-time)
Financial Goals
Quality Education for Daughters
Construction of a 3500 sqft House in Chennai in 10 Years
Retirement Savings
Evaluating Current Investments
LIC Policies
LIC plans, while safe, typically offer lower returns compared to other investment options. Re-evaluating the need for these endowment and money back plans is crucial, as they might not align well with high-growth financial goals.
Public Provident Fund (PPF)
PPF is a safe investment with tax benefits and decent returns. Continue with your PPF contributions, as they offer a good balance of safety and returns.
Sukanya Samriddhi Yojana (SSY)
SSY is an excellent scheme for your daughters’ future expenses, given its attractive interest rates and tax benefits. Continue your contributions.
Mutual Funds - SIP and Lumpsum
Your investment in equity mutual funds via SIP and lumpsum is prudent, as equity funds typically provide higher returns over the long term.
Recommendations
1. Reallocate LIC Investments
Consider discontinuing further investments in LIC endowment and money back plans. Redirect these funds into higher-yield investments like mutual funds, PPF, and SSY, which better align with your long-term goals.
2. Optimize Mutual Fund Investments
Increase SIP Contributions: Increase your SIP contributions in equity mutual funds. Diversify across large-cap, mid-cap, and multi-cap funds to balance growth and risk.
Regular Review: Regularly review the performance of your mutual funds and adjust as necessary. Consulting a Certified Financial Planner (CFP) can help in optimizing your portfolio.
3. Create a Separate Education Fund
Open a dedicated investment account for your daughters’ education. Consider child-specific mutual funds, which cater to education expenses with appropriate risk management.
4. Plan for Home Construction
Dedicated Savings Plan: Open a recurring deposit or SIP in a balanced or debt fund dedicated to your house construction goal. Aim to accumulate the required corpus over the next 10 years.
Systematic Investments: Regularly invest a portion of your savings towards this goal to ensure you have the necessary funds when needed.
5. Retirement Planning
Increase PPF Contributions: Maximize your PPF contributions to ?1.5 lakh per year for steady, tax-free returns.
Diversify Retirement Portfolio: Include a mix of equity and debt mutual funds to build a robust retirement corpus. Start a SIP in balanced advantage funds to ensure stability and growth.
Managing Expenses and Generating Passive Income
1. Expense Management
Budgeting: Track your monthly expenses diligently and look for areas to cut back, especially on discretionary spending.
Emergency Fund: Maintain an emergency fund equivalent to 6 months of expenses to cover unexpected costs.
2. Generating Passive Income
Dividend-Paying Mutual Funds: Invest in mutual funds that offer regular dividends, providing a steady passive income stream.
Systematic Withdrawal Plan (SWP): Consider setting up an SWP from your mutual fund investments to generate regular income without liquidating your investments.
Explore Other Avenues: Avoid direct stock market investments if you lack the time or expertise. Focus on mutual funds and other safer, managed investment options.
Conclusion
Your current investments are on the right track but can be optimized for better returns. By reallocating funds from LIC policies to higher-yield investments, increasing SIP contributions, and maintaining a disciplined savings plan, you can achieve your financial goals. Regular reviews and consulting with a Certified Financial Planner will ensure you stay on course.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
